Risk of Ruin Calculator [Free Tool]
Estimate the probability that a losing streak depletes your account before it can recover. Make the survival number explicit before you raise your per-trade risk.
Disclaimer: Trading financial instruments involves risk, and everything on this page is provided for educational purposes only. Nothing here is financial advice or a recommendation to buy or sell any instrument.
Risk of Ruin
0.00%
How is this calculated?
RoR = ((1 − edge) ÷ (1 + edge)) ^ riskUnits
edge = WinRate × R − (1 − WinRate)
riskUnits = Max Drawdown ÷ Risk per Trade
Read the full user guide
Every parameter, formula, and worked example — a complete reference for this tool.
What is risk of ruin?
Risk of ruin estimates the probability that a sequence of losing trades depletes your account to the point where you cannot keep trading. It is the metric that keeps otherwise profitable strategies honest: even a positive-expectancy approach can go broke if position sizing is too aggressive or a long losing streak arrives early. The calculation combines your win rate, payoff, and the fraction risked per trade into a single warning number — and makes the case for keeping per-trade risk small explicit.
Key concepts
Ruin
The account balance falling to or below a level where trading can no longer continue.
Loss streak
Consecutive losing trades, which risk-of-ruin explicitly models.
Kelly link
Over-sizing accelerates ruin; under-sizing lowers the probability but also lowers growth.
A worked example with real numbers
- 1
Enter the strategy profile
Your strategy wins 55% of trades with a 1:1 payoff, and you risk 5% of the account on each trade.
- 2
Let the model run
The model estimates the probability that a run of losses depletes the account before recovery.
- 3
Read the warning
At 5% per trade the ruin risk is uncomfortably high — a modest losing streak of 20 trades could cut the account in half.
- 4
Lower the per-trade risk
Cutting risk to 1% per trade makes ruin far less likely, because each loss removes a much smaller slice of the account.
How to use it
Enter win rate and payoff
The expected characteristics of your strategy.
Enter risk per trade
The fraction risked on each trade, or fixed loss.
Read the ruin probability
The estimated chance of depleting the account.
The formula, step by step
Risk of ruin
R = ((1 − Edge) ÷ (1 + Edge)) ^ Sessions
For a simplified constant-fraction model.
Mistakes traders make
✗ Believing positive expectancy guarantees survival
✓Expectancy is an average; ruin is about the worst sequence that can arrive first. A long early losing streak can end an account that would have won over time.
✗ Sizing positions aggressively because 'the edge is real'
✓Over-sizing is precisely how positive-edge strategies go broke. The edge deserves small, disciplined bets.
✗ Trusting the estimated probability as exact
✓The model depends on your win rate and payoff, both of which are estimates. Treat the figure as a warning sign, not a precise forecast.
When this tool fits — and when it does not
Use it when
- ✓Before increasing position size, to quantify what the extra risk does to survival odds.
- ✓When choosing a risk-per-trade percentage for a new strategy.
- ✓As a gut check when a strategy's backtest looks tempting.
Skip it when
- ✗Trading a strategy whose ruin probability you refuse to calculate.
- ✗Reading a low ruin risk as permission to abandon stop losses.
- ✗Treating the number as static — it changes with every input.
Practical tips that actually help
Aim for ruin risk close to zero
Most disciplined traders want survival odds near certainty. If the model shows meaningful ruin risk at your current size, that is a signal to shrink.
Recalculate when your edge estimate changes
If your win rate falls in live trading, your ruin risk can jump sharply. Revisit the number with fresh data.
Use it before adding capital
A strategy can survive at one size and ruin at another. Run the model again before scaling up.
Related & next steps
Frequently asked questions
What is an acceptable risk of ruin?▾
Many aim close to zero. The exact tolerance is personal, but the point is to make the number explicit before increasing risk.
Is a positive expectancy enough to avoid ruin?▾
No. Expectancy is an average over many trades; ruin is about the worst sequence that can hit before the average plays out. A long early losing streak can ruin an account that would have been profitable over a long enough sample.
How does position size affect risk of ruin?▾
Directly and strongly. The larger the fraction of the account risked per trade, the fewer consecutive losses it takes to reach ruin — so small, disciplined sizing is the single biggest lever on survival.
Why is risk of ruin a probability rather than a certainty?▾
Because the order and clustering of wins and losses are random. The model estimates the chance of a ruinous sequence given your inputs; it cannot say whether that sequence will actually arrive.
What inputs matter most for the estimate?▾
Win rate, the payoff ratio, and the fraction risked per trade. Small errors in win rate produce large errors in ruin probability, so be conservative with your inputs.
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Risk of ruin is a probabilistic model with simplifying assumptions, not a precise forecast of outcomes.
Disclaimer: The tools and content on this site are provided for educational purposes only and do not constitute investment advice. Trading and investing involve a substantial risk of loss, and past performance does not guarantee future results.